Investors often overlook SEC filings, and it is the job of the 10Q Detective to dig through businesses’ 8-K and 10-Q SEC filings, looking for financial statement ‘soft spots,'(depreciation policies, warranty reserves, and restructuring charges, etc.)that may materially impact Quality of Earnings.

Saturday, November 01, 2008

BNET Update: Monday, November 3, 2008

In 2001, eBay (EBAY-$15.27) bought a 19.5 percent stake in the Latin American online auction-site operator MercadoLibre. The global slowdown and current turmoil in the credit markets, however, has eroded the value of that holding.

Returning an attractive 17.2% on shareholder equity, on average, over the last five years, the board of Ensco International (ESV-$38.05) obviously felt that repurchasing its own shares on the open market was a prudent investment. Like many of its offshore contract drilling peers who made similar fiduciary decisions, however, Ensco International overpaid for its own stock.

First Solar (FSLR-$143.70) is striving to open new markets that do not depend on traditional photovoltaic (PV) subsidiaries, such as feed-in-tariffs, and can offer significant long-term growth, such as the California Renewable Portfolio Standards market for utility scale generation. Despite good intentions, approximately 70 percent of 2008 module volumes and an estimated 60 percent of 2009 module volumes will be deployed in Germany.

For-profit education provider ITT Educational Services (ESI-$87.65) delivered on its third-quarter ended September 30, with sales and operating income up year-on-year 17 percent and 28 percent, on a 19.4% jump in student enrollment. Going forward, however, ITT’s prospects during the current economic climate appear less sanguine, for disruptions in the credit markets have reduced significantly the amount of private loans available to potential students.

McMoRan’s Explorations’ (MMR-$14.19) strategy focuses on the deep gas plays, drilling to depths of 15,000 to 25,000 feet in the shallow waters of the Gulf of Mexico and Gulf Coast area, and on ultra-deep gas plays below 25,000 feet. Drilling in deep water is not without risk, however, as assessments following Hurricane Ike identified several platforms with significant structural damage. Based on current information, McMoran currently expects fourth-quarter production to average approximately 180 MMcfe per day, down from a production average of about 296 MMcfe/d in July and August.

Tidewater (TDW-$43.61) has 57 vessel commitments of various class and type, ranging from offshore tugs to deepwater vessels, scheduled for delivery from November 2008 through 2012. Given uncertainties in the credit and energy markets, the company is in the process of re-assessing its previous strategy of fleet expansion and replacement plans.

Jeff Fettig, Chief Executive of Whirlpool Corp. (WHR-$46.65) told analysts on the third-quarter 2008 earnings call the company was implementing previously announced cost-based price increases and cost control initiatives, such as plant closings, yet he failed to discuss the potential impact on the company’s profitability and cash flow generation should the credit crisis adversely impact Latin American operations.

Anticipating a challenging business environment in 2009, Xerox Corp. (XRX-$8.02) will slash five percent of its work force, or about 3,000 jobs, in the next six months. Going forward, retirees of the copier giant, however, will share the burden in cost displacements, too.

Editor David J Phillips does not hold a financial interest in any stocks mentioned in this article. The 10Q Detective has a Full Disclosure Policy.

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About Me

Prior to founding the 10Q Detective, I held equity analyst positions with three brokerage firms and published the investment newsletter e-Growth Profit Letter - dedicated to uncovering companies with innovative, proprietary technologies in a range of industries. My work has been published in The Dick Davis Digest, The Bull & Bear Financial Report, BusinessWeek, CBS Interactive, Forbes, Kiplingers Personal Finance, MSN Money, TheStreet.com, 24/7 Wall Street, The Wall St. Journal, The International Herald Tribune, and Investors Business Daily.
The 10Q Detective is recommended as a 'Must-Read' money blog in Kiplingers (Oct. 2006 & May 2008), Washington Post (May 2009); a 'Best of Financial Blog' by BusinessWeek (Feb. 2007 & April 2008),a 'Smart Stop' by The Journal of Accountancy (March 2008); 'Top 25' by Time magazine, a 'Top 50 Money Blog' by CurrencyTrading.net (April 2008); and, a 2011 LexisNexis Business Law Blog Nominee.